How do the new vehicle taxes affect you? CarBuyer asseses the implications of the FY2017 Budget 

SINGAPORE — The Minister for Finance, Mr Heng Swee Keat, delivered the FY2017 Budget Statement to Parliament today, with little news for car buyers.

The car industry had been on tenterhooks about the Budget and its implications for vehicle taxes and financing since the Land Transport Authority delayed this week’s COE auction from its usual Monday opening to Wednesday.

But it looks like they had little to worry about, with nothing from Budget 2017 expected to impact the car market in a major way, at least until the rest of the year.

The motorcycle trade, on the other hand, was delivered a nasty surprise in the form of tiered ARF (or Additional Registration Fee) for motorcycles. This will raise prices significantly for most large-engined motorcycles, while leaving the cheapest and least-powerful machines largely unaffected. 

In a nutshell, here are the salient points for motorists from Budget 2017:

CEVS to be replaced in 2018
The Carbon Emissions-based Vehicle Scheme tied vehicle taxes to the carbon emissions from cars, and was created in 2013. It will carry on in its current form until December 31st this year, and will then be replaced by new Vehicle Emissions Scheme on New Year’s Day 2018. The new VES will factor in four other pollutants, so the health and environmental impact of vehicle emissions can be accounted for more “holistically”, according to the Minister. 

It’s likely to affect diesel cars the most, since they tend to emit more nitrous oxides and particular matter than petrol cars.  “With this scheme, we hope to nudge car buyers towards cleaner and environmentally-friendly models,” he said. He had referenced how the “overuse” of diesel cars has led to smog in London, Paris and Rome.

The VES will run for two years before being re-examined.

Taxing diesel use — higher pump prices, lower lump sum taxes
Diesel is currently taxed at the machine end as a Special Tax, in the form of an annual lump sum. Those who have cars that use petrol and compressed natural gas, pay taxes on the fuel, too.

The Special Tax on diesel cars will be trimmed by $100 a year (and $850 for taxis) while a volume-based diesel duty of 10 cents per litre kicks in. Businesses will get a 100 percent rebate on the Special Tax this year and a partial rebate for another two years. The Minister said that the majority of diesel users would end up paying less overall, even after diesel fuel itself is taxed.

At the same time it would encourage drivers to use less of the stuff. “Taxing diesel according to usage incentivises users to reduce diesel consumption,” he said.

Our take: diesel cars will continue to gain in popularity here, at least until the end of the year. When VES is introduced, the likely effect will be to raise retail prices for many diesel cars that currently enjoy large CEVS rebates.

Tiered ARF for motorcycles
From this week’s Certificate Of Entitlement auction, many bikes are about to get more expensive, some significantly so. “Today, all motorcycles incur the same Additional Registration Fee, or ARF, at 15% of their Open Market Value (OMV). A small but rising number of buyers are buying expensive motorcycles – their motorcycles have OMVs similar to those of small cars,” said the Minister. “Just as we introduced tiers to the ARF for cars in 2013 to improve progressivity, I will introduce two more tiers for more expensive motorcycles.”

Bikes up to $5,000 in OMV will continue to pay 15 percent. The next $5,000 will attract a 50 percent ARF rate. Beyond that it gets seriously painful, with any OMV amount above $10,000 subject to a whopping 100 percent ARF.

A BMW R 1200 GS Adventure (below), a popular adventure bike, has an OMV of around $21,000, so it would see its price rise by $13,500 to just over $60,000 — within sight of some small cars’ prices.

Some in the motorcycle trade don’t see this having an impact on motorcycle COE prices, which have been consistently above the $6,000 mark since last year. Eugene Mah, the managing director of Mah Pte Ltd, says COE prices are high to due the fundamental forces of demand and supply.

“Doing this increases the prices of big bikes which may potentially reduce the demand for them, but those who buy small bikes are still going to carry on buying,” he said. 

He points out that a 400cc scooter from Taiwan would already fall into the 50 percent ARF tax bracket. The nicest motorcycle in the Mah stable to fall under the $10,000 OMV limit would be a Triumph Bonneville T100, he says.

The Minister said that based on current buying, “more than half” of bikers will continue to pay the current 15 percent ARF. What was left unsaid is that bikers who want to play, will have to pay.

Changes to the COE system
It wasn’t all bad news for motorcyclists. The Category D COE (for bikes) will no longer contribute to the pool of Category E (Open) COEs. In the last ten years fewer than 0.1 percent of Open Category COEs were used to register bikes, even though 15 percent of the number of deregistered motorcycles contributed to the Open Category COE population. This means every seven deregistered bikes effectively came back as a car, lorry or bus.

From May this year the bike contribution to the Open Category COE pool will be stopped, which should stabilise the motorcycle population at 142,439 (as of the end of 2016).

The Land Transport Authority has also said it will look into ways to modify the Category E price mechanism. One idea being considered is “differential pricing” — from a baseline price, buyers indicate how much extra they’re willing to pay. The reference price could be the three-month average price for a given COE, according to the kind of vehicle the buyer wants to register.

The LTA said it’s soliciting feedback and will share more details in “due course”. 

A second look at electric viability? 
Longer-term, the Minister spoke of implementing a carbon tax on power producers and other large upstream emitters by 2019, with a tax of somewhere between $10 and $20 payable per tonne of greenhouse gas emissions. This might nudge producers toward cleaner electricity generation methods (or it might simply result in higher electricity bills for us as producers pass the cost along to consumers).

But the best-case scenario would be for it to prompt a re-look at the role Electric Vehicles like the BMW i3 (below) can play. Cars like the i3 produce no tailpipe emissions, but an “equivalence factor” is used to account for the carbon emittied generating the electricity needed to charge their batteries.

 If electricity is generated in a cleaner way in the future, here’s hoping that will make it easier for people to recognise how clean electric drive can be.